Planning and Budgeting
Essay Preview: Planning and Budgeting
Report this essay
Relevant information
Barbers 5
Hour pay 9.90
Week 40 hours
Weeks 50 year
Rent and fixed expenses 1,750 month
Shampoo .40 per client
Hair cuts 12.00
Barbers 5*9.90=49.5 hour
Week 40*49.5hour=1,980 total payroll week
Total payroll week 1,980*50=99,000 total yearly wages
Total expenses 1,750*12=21,000 per year
Total fixed expenses 99,000+21,000=120,000
1. Contribution Margin
Unit Sales Price
$12.00
– Unit Variable Cost
.40
= Unit Contribution Margin
$11.60
2. Annual Break-even Point (Haircuts)
In order to find the break even point one must take total yearly expenses (120,000) and divide them by the unit contribution margin (11.60). This business must generate enough sales to equal total fixed costs. By finding the break-even point they know how many haircuts need to be given in order for the business to survive. Each barber must give approximately 42 haircuts a week to make this goal.
120,000/11.60=10344.83 or 10345 break-even point
3. 20,000 Haircuts
Fixed costs 99,000+ 21,000=120,000
Variable costs .40*20000=8,000
Total costs 120,000+8,000=128,000
Total Revenue 20,000*12=240,000
Operating income 240,000-128,000=112,000
4. Change in compensation method
Barbers 5
Hour